Germany engineers success in China

Buildings Brics: China has become a crucial trading partner with German as Volkswagens, BMW and Mercedes dominate the country's car market.

:Among the German companies producing in huge volumes in China are car makers. Audi is the top-selling premium car maker in the country, while second and third places in the sector are taken by BMW and Mercedes. Liu Jin / AFP
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The European economic powerhouse is fast overtaking its domestic continental competitors and aims to grow the value of trade between the two countries to $280bn in the next few years - and that is not seen as a fanciful notion, Daniel Bardsley, foreign correspondent,writes.

Take a trip to north-east Beijing and you could be forgiven for thinking, as you jumped off the subway at Liangmiaqiao station, that you had arrived in Germany.

There is a BMW showroom where the latest-model 7-series and 5-series saloons sit gleaming under the spotlights, ready to attract well-heeled buyers.

Next door is the entrance to the vast Lufthansa Centre, a retail, office and residential complex which includes a glitzy hotel run by the German and Swiss operator Kempinski.

If evidence of the prominence of German companies in China were needed, this corner of the Chinese capital certainly provides it.

It is no wonder the visit to China last week of Angela Merkel was front-page news, with the German chancellor taking a tour of Guangdong province, the industrial heartland where many German engineering firms are active providing equipment for China's manufacturing boom.

"German speciality machine suppliers still seem to have a very successful time here," says Thomas Herrmann, a Chinese-speaking German whose experience in the country includes a stint working as a project manager for Industry Planning and Organisation, which supplies engineering equipment.

"China's industry is modernising, and Germany's industry is providing answers to many of those questions involved in this process."

And in a country where the roads are dominated by Volkswagens, Audis, BMWs and Mercedes, the comment from Mr Herrmann that "the sky's the limit" for German car makers in China seems more than justified.

Bilateral trade in 2010 reached $142.4 billion (Dh522.99bn), constituting about one third of total China-EU trade, and in the first 11 months of last year it jumped to $155.1bn. By way of contrast, in 2009 the UK exported goods worth little more than $5bn to China, while the same year Germany's exports were valued at $32bn, according to a report published last year by the UK parliament's business, innovation and skills committee.

That same report almost betrayed a tone of exasperation when describing the strength of Germany's position in the Chinese market. The document revealed it was "deeply worrying" that even if the UK reached its targets for growing bilateral trade, it would still be "dwarfed" by German-Chinese trade.

"German firms do not just export to China; they produce in China in huge volumes. Those firms that are capable of doing it - and many are - have taken with them their SMEs [small and medium size enterprises] within their supply chain," the report said.

Among the German companies producing in huge volumes in China are car makers. After moving into Shanghai as early as 1983, Volkswagen (VW) is China's bestselling brand. The German giant has two joint-ventures, one based in Shanghai and the other in north-east China, and in total sold 2.2 million cars in the second-biggest economy in the world last year, the vast majority made locally. There are now even VW models, such as the Lavida saloon, that are only sold in China. Audi, VW's upmarket stablemate, is the top-selling premium car maker in China, while second and third places in the sector are also taken by German companies - BMW and Mercedes. Many car buyers in China regard German vehicles as the best available.

"German car brands are very popular. The technology and the quality control are much better," says Liu Changwen, 51, a manager for a mining company who is based in Beijing. This reflects the generally positive view many Chinese consumers have of German-made or designed goods. "The regulations are stricter there so most products made there are better than those made in China," says Wang Ting, 21, who works for a residential property company.

The majority of the 5,300 German companies active in China are in engineering, according to Max Zenglein, a regional manager and economic analyst for the German Chamber of Commerce who is based in Shenzhen, where China's economic boom began. He points out that a great deal of German companies are involved in the plastics industry, providing tooling and other machinery. Research and development is also another key area. Daimler is working with the Chinese car maker BYD to develop electric cars. There are many less high-profile German engineering companies operating in the region.

"Typically there are small to medium-sized German companies. They have service teams of highly specialised engineers. It's something where German companies are very strong," Mr Zenglein says.

He says many German companies are employing an increasing number of Chinese staff. Because of their high level of expertise these companies are less sensitive to the price pressures that have pushed some low-end industrial activity out of China as basic wages rise.

Mr Herrmann cites the working methods and management styles of many German companies - not just their technology - as being key factors behind their success.

Last month, China's largest construction group, Sany Heavy Industry, agreed to buy the German concrete pumps manufacturer Putz-meister in a $475 million deal.

Yet the China-Germany story has a dark side. During her visit last week, Mrs Merkel called on Beijing to make greater efforts to protect the intellectual property rights of German companies and to improve market access. Also, the overall level of Chinese direct investment in China is very modest, at $1.73 billion in the first eight months of last year, compared with $18.03bn German direct investment in China, according to Chinese state media.

Despite this, the target of doubling bilateral trade to more than $280bn by 2015 does not seem far fetched, and in the face of Germany's dominance, other European countries such as the UK may struggle to catch up.